Sunday 05 January 2020
Never before have countries primarily relied on their economic might rather than the power of the gun to achieve their strategic goals in foreign policy. From Washington to Beijing, through Abu Dhabi, the power of arms and the sacrifice of men and women in uniform continue to be a central pillar of national security architecture. According to data from the Stockholm International Peace Research Institute (SIPRI), the world’s military expenditure shows a regular decline, from just below US$ 1500 billion at the end of the 1980s to about US$ 1000 billion in 1996, and a steady increase after 1998, before plateauing since 2010, with a record US$ 1739 billion in 2017.
This overall upward trend in military expenditure is correlated with the rise of the global economy. The size of the world’s economy is projected to more than double by 2050, far outstripping the world population growth due to continued economic innovation. The center of gravity of the world’s economy has now shifted from West to East. The economic size of Asia is set to be bigger than the combined size of the rest of the world’s economy in 2020. Global economic power will further shift to the E7 (Brazil, China, India, Indonesia, Mexico, Russia, and Turkey) group of emerging market economies by 2050.
A country’s wealth has now become more important than military force, and the world’s economies have become more interdependent. With this reality, a new set of actors have emerged, aided by large current account surpluses and the accumulation of huge foreign reserves. These massive financial weapons have allowed them to protect their economies and national interests from the mood of volatile international capital markets, and also to engineer new approaches of economic statecraft for foreign security purposes. Countries that are skillfully using these new approaches include but is not limited to China, the United Arab Emirates, and Saudi Arabia.
Greater wealth among nations and economic interdependence have increased foreign security externalities and favored a more systematic use of economic means as foreign policy tools. The phrase ‘security externalities’ refers to the security consequences associated with economic interactions. The “use of economic instruments to promote and to defend national interests, and to produce beneficial geopolitical results; and the effects of other nations’ economic actions on a country’s geopolitical goals” is known as geo-economics. Our modern-day geo-economics is concerned with reinforcing, reducing, or capitalizing on these security consequences.
Preoccupations over the security externalities of other countries’ economic actions have become a major national security concern. In particular, political leaders of the European Union (EU) and the USA are worried, and this is the core reason behind President Trump’s anti-China trade policies. The EU views China as a ‘systemic rival’. For instance, the Germans were stupefied by a Chinese billionaire becoming the largest shareholder of Daimler (Mercedes-Benz, Smart) on 24 February 2018. Brigitte Zypries, the German Minister of Economy expressed her concerns saying that this purchase should not be “a gateway to serve the industrial policy of other states.” As an echo of the complexity of the issue, Angela Merkel, the German Chancellor, tried to reassure that there was no "infringement" in this operation and that her country is open to business partners. Perhaps, the German Chancellor’s remarks are a sign that the economy prevails over purely security concerns, at least when the security threat or challenge is not seen as vital.
Similar worries were expressed in France. For instance, the Minister of Finance, Bruno Le Maire, declared that "Openness does not mean looting our technologies, our skills, and our know-how”.
At the same time, European countries want foreign investors. Italy has thus become the first G7 member country to endorse China’s Belt and Road Initiative of maritime and terrestrial infrastructure launched in 2013. Italy is expecting to attract Chinese investment to power its stagnant economy. The two countries have signed several contracts, especially in the telecommunication sector, for about 20 billion dollars. Italy made this move despite strong opposition from its national security allies, especially the USA.
The question now is whether countries should prevent foreign investments in certain sectors or not. The response seems to be yes. In certain countries, France, for example, some sectors are subject to prior state authorization for the validation of foreign investment. They include transport, energy, telecommunications, water, health, defense, data storage, drones, space, research, and development in the fields of Cybersecurity, Artificial Intelligence, Robotics, Additive Manufacturing (3D printing), Semiconductors, and Financial Infrastructure. The USA and other countries have similar validation mechanisms.
When Amazon announced in 2017 the acquisition of UAE-based souq.com, the largest e-commerce platform in the Arab World, some actors in the UAE domestic market voiced concern. For instance, Mohamed Alabbar, the founder of noon.com and Chairman of Emaar said that Amazon was a threat to the UAE domestic market. Conversely, the reaction of Majid Saif Al Ghurair, Chairman of Dubai Chamber of Commerce and Industry, was to say that Amazon was not a threat to the UAE retail sector. Each of the two business actors points to legitimate national interests concerns. As regards national security, in China, for example, Amazon is required to follow regulations over online data, which forbid non-Chinese companies from owning or operating certain technology for the provision of cloud services.
What national security measures can countries adopt to prevent weaponized foreign investments? There are certain steps countries can take to safeguard both their security and economic national interests. This involves determining the criteria for defining which activities will be considered strategic and establishing national security red lines. These latter imply banning mergers and acquisitions of national security relevant infrastructure. Furthermore, the foreign acquisition should not be made in biased conditions, for example with the support of a state, or through a foreign branch in a country. Finally, countries should also implement the reciprocity principle as a response to the merger and acquisition policy practiced in the country of the acquirer.